The Aotearoa NZ government’s recent declaration of a ‘climate emergency’ was largely symbolic, and perceived by some as virtue signalling. Businesses should nonetheless recognise the clear message being sent: the country is undergoing an unprecedented transition to a low carbon economy.

The Carbon Neutral Government Programme (CNGP) is an example of this, announced on the same day as the climate emergency. The CNGP requires the public sector to achieve carbon neutrality by 2025. This will likely mean costs to existing suppliers in order to meet the new expectations, but also present opportunities for alternative suppliers of goods and services to the Government. The Programme, once implemented, will be an important catalyst in NZ’s transition to a low carbon economy.

The Carbon Neutral Government Programme

The Climate Change Response Act sets NZ’s target for emissions reduction: to reduce net accounting of greenhouse gas emissions, other than biogenic methane, to net zero by 2050.

Achieving this goal requires NZ to become a low carbon economy, and quickly. Changes were introduced in the last term of Government to achieve this, but the Government, in its emergency announcement, has made it clear that more is needed - and to be expected - in order for NZ to meet its 2050 target. Requiring a country’s state sector to become carbon neutral has proved an effective catalyst overseas, and NZ can expect the same.

This element of directed change has long been foreshadowed as a means to manage decarbonisation and economic stability as we work towards meeting the 2050 target. Less understood have been the economic benefits of transitioning: opportunities continue to grow for those organisations with the foresight to start the process of replacing carbon-dependent goods and services.

Key elements of the Programme include:

• All Crown agencies are required to measure, verify and report emissions annually, as well as set gross emissions targets across the whole supply and value chain and introduce a work plan to achieve them.
• Immediate focus on phasing out the largest and most active coal boilers.
• Crown agencies required to purchase electric vehicles (EVs) and reduce the size of their car fleet.
• For all government office accommodation over 2000 square metres, new leases will require a 4-star energy efficiency building rating, and new builds will require a 5-star rating.

At risk of stating the obvious, meeting these requirements will force state sector agencies to immediately change the extent to which they consume fossil fuels. The breadth of the state sector economy is such that these changes, coupled with the requirement for financial institutions to assess, manage, and report on their climate-related financial risk, will inevitably drive rapid and transformative behavioural change across the private sector.

Electrification of the Government car fleet

This is a good example of how the CNGP is intended to drive wider change.

The state sector runs a fleet of nearly 16,000 vehicles. An accelerated shift towards making the fleet fully electric will provide a range of cascading opportunities, such as developing a network of charging infrastructure across the country, and upskilling in EV maintenance. Additional EV supply options will also be required, creating a greater range of options, and demand, within that market.

Development of the charging infrastructure provides increased opportunities for EV suppliers and support services. Economies of scale on the supply side will inevitably contribute to making EV ownership more affordable and more accessible for private individuals and organisations, thereby promoting decarbonisation of the overall NZ fleet.

Carbon neutrality of supply and value chains

Supply chain impact is perhaps the most significant element of the Programme in terms of promoting carbon neutrality across the wider economy.

The Programme calls for state sector agencies to measure, verify, and report on their emissions annually, requiring them to quantify carbon emissions across their whole supply and value chains.

This will require private sector suppliers of goods and services to Crown agencies to, if they don't do so already, quickly assess their carbon footprints and those of their own suppliers, and reduce these footprints where necessary. They would also be wise to forecast their carbon emissions through to 2025 in order to assess the risk this, combined with the rapid rise in the price of carbon (up by 60% in the last six months), brings to the near term viability of their operations.

In short, businesses involved directly and indirectly in the state sector supply and value chains will need to modify their practices in order to meet the requirement to be carbon neutral by 2025.

Some businesses are already investing in low carbon technologies and talent; those that haven’t will need to do so quickly in order to remain competitive and keep up with the changing demands of the Government.

An important catalyst for a low carbon shift

Enabling NZ to meet its Paris Agreement targets (now largely enshrined in the Climate Change Response Act 2002) is a massive task. The declaration of a climate emergency, and now also the CNGP, are acknowledgements by the Government that measures taken to date are not enough to stave off the financial instability that a late and disorderly transition could bring. Forced change is therefore necessary.

There are a number of levers available to the Government to force changes in behaviour and encourage better management of climate-related risk. The Emissions Trading Scheme is one, and recent reform promises to drive increasingly rapid change. Technological advancements and changes in societal expectations also have a significant impact.

At least for now, however, behavioural change will continue to be driven by regulatory change. Regulation requiring the public sector to change its procurement habits will catalyse further change, as the private sector is prompted to respond in kind. The impending climate-related financial disclosure requirements will prompt yet more change.

The potentially significant economic upside anticipated to arise as the country transitions to net zero in 2050 cannot be forgotten either.[1]

Contributors oska.rego@simpsongrierson.com, laura.green@simpsongrierson.com